Academic Commons Search Resultshttp://academiccommons.columbia.edu/catalog.rss?f%5Bauthor_facet%5D%5B%5D=Choi%2C+Jay+Pil&f%5Bdepartment_facet%5D%5B%5D=Economics&q=&rows=500&sort=record_creation_date+desc
Academic Commons Search Resultsen-usThe Economics of Repeated Extortionhttp://academiccommons.columbia.edu/catalog/ac:100500
Choi, Jay Pil; Thum, Marcelhttp://hdl.handle.net/10022/AC:P:15735Mon, 07 Mar 2011 00:00:00 +0000This paper provides a simple model of repeated extortion. In particular, we ask whether corrupt government officials' ex post opportunism to demand more once entrepreneurs have made sunk investments entails further distortion in resource allocations. We show that the inability of government officials to commit to future demands does not distort entry decisions any further if technology is not a choice variable for the entrepreneurs. The government official can properly discount the initial demand in order to induce the appropriate amount of entry. If, however, the choice of technology is left to the entrepreneurs, the dynamic path of demand schedules will induce entrepreneurs to pursue a "fly-by-night" strategy by adopting a technology with an inefficiently low sunk cost component. In this case, we show that the unique equilibrium is characterized by a mixed strategy of the government official on future demand. Our model thus explains why arbitrariness is such an inseparable feature of corruption. We also investigate implications of the stability of the corrupt regime for the dynamic extortion and discuss how our framework can be applied to other investment contexts involving the risk of expropriation.Economicsjpc8EconomicsWorking papersTying and Innovation: A Dynamic Analysis of Tying Arrangementshttp://academiccommons.columbia.edu/catalog/ac:100488
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15731Mon, 07 Mar 2011 00:00:00 +0000This paper analyzes the effects of tying arrangements on R&D incentives. It shows that tying is a means through which a firm can commit to more aggressive R&D investment in the tied goods market. Tying also has the strategic effect of reducing rivals' incentives to invest in R&D. The strategy of tying is a profitable one if the gains, via an increased share of dynamic rents in the tied goods market, exceed the losses that result from intensified price competition in the market. The welfare implications of tying, and consequently the appropriate antitrust policy, are shown to depend on the nature of R&D competition.Economic theoryjpc8EconomicsWorking papersVertical Foreclosure with the Choice of Input Specificationshttp://academiccommons.columbia.edu/catalog/ac:100381
Choi, Jay Pil; Yi, Sang-Seunghttp://hdl.handle.net/10022/AC:P:15699Thu, 03 Mar 2011 00:00:00 +0000This paper develops an equilibrium model of vertical foreclosure with the choice of input specifications. In this model, vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would, as an independent firm, provide a generalized input. The changes in incentives whit vertical integration allows the upstream firm to internalize the benefit of raising the rival firm's cost at the downstream level. The choice of a specialized input by the integrated firm serves as a natural commitment mechanism not to supply the rival downstream firms, and thus enables us to dispense with the controversial price commitment assumption in the literature. We derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences.Economic theory, Economics, Commerce-Businessjpc8EconomicsWorking papersEquilibrium Vertical Foreclosure with Investmenthttp://academiccommons.columbia.edu/catalog/ac:100389
Choi, Jay Pil; Yi, Sang-Seunghttp://hdl.handle.net/10022/AC:P:15700Thu, 03 Mar 2011 00:00:00 +0000One of the most enduring controversies in antitrust concerns the potential foreclosure effects of vertical integration. In a recent paper, Ordover, Saloner and Saloner and Salop (1990) construct a model of vertical integration in which vertical foreclosure emerges as the equilibrium outcome. However, as is well-known, OSS’s result breaks down if the vertically integrated firm cannot make the price commitment. In this paper, we reexamine the foreclosure theory of vertical integration by extending OSS’s model to include upstream market power and investments. Cost-reducing investments introduce a channel through which the integrated firm can credibly commit itself to a higher input price at which it is willing to supply the unintegrated downstream firm. We show that a profitable but anticompetitive (both for consumer welfare and for aggregate efficiency) vertical causing hold-out problems between the input suppliers. In contrast to OSS’s model, where vertical integration (even with commitment) is not effective under Cournot downstream competition, vertical integration in our model can be both effective and anticompetitive even under Cournot downstream competition.Economics, Commerce-Businessjpc8EconomicsWorking papersA Dynamic Analysis of Licensing: The "Boomerang" Effect and Grant-Back Clauseshttp://academiccommons.columbia.edu/catalog/ac:100401
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15704Thu, 03 Mar 2011 00:00:00 +0000This paper develops an incomplete contract model of the licensing relationship to analyze the dynamic effects of licensing on R&D competition in the innovation market and to examine the rationale for often observed grant-back clauses. Of particular concern are how the consideration of future competition distorts the licensing relationship and how the “grant-back” clause can mitigate this distortion. I also evaluate the validity of the casual antitrust argument that grantback clauses may adversely affect competition because they reduce the licensee’s incentive to engage in R&D and thereby limit rivalry in innovation markets.Economicsjpc8EconomicsWorking papersBrand Extension as Informational Leveragehttp://academiccommons.columbia.edu/catalog/ac:100433
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15714Thu, 03 Mar 2011 00:00:00 +0000The marketing literature refers to the concept of brand capital and provides empirical evidence that firms with a large stock of well established brands have an advantage in introducing new products. This paper develops a theory of brand extension as a mechanism for informational leverage in which a firm leverages off a good's reputation in one market to alleviate the problem of informational asymmetry encountered in other markets. It is shown that brand extension help a multi product monopolist introduce new experience good with less price distortion. Thus, the paper provides a theoretical foundation for the concept of brand capital.Marketing, Economic theoryjpc8EconomicsWorking papersProtectionist Response to Import Competition in Declining Industries Reconsideredhttp://academiccommons.columbia.edu/catalog/ac:134913
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15655Wed, 02 Mar 2011 00:00:00 +0000Economicsjpc8EconomicsWorking papersInformational Leverage and the Endogenous Timing of Product Introductionshttp://academiccommons.columbia.edu/catalog/ac:100276
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15666Wed, 02 Mar 2011 00:00:00 +0000This paper provides a new rationale for bundling based on informational leverage. It is demonstrated that physically tying a product of established quality to one of unknown quality may mitigate the problem of asymmetric information encountered in the latter market. Leveraging reputation in one market to provide information about product quality in a second market can have profound implications for the timing of new product introductions. Bundling motivated by informational leverage can enhance efficiency by timing of product introduction is considered, however, the welfare consequences of bundling are ambiguous. The positive effect of market creation must be weighed against the negative effect of market delay.Economicsjpc8EconomicsWorking papersMarket Structure and the Timing of Technology Adoption with Network Externalitieshttp://academiccommons.columbia.edu/catalog/ac:100261
Choi, Jay Pil; Thum, Marcelhttp://hdl.handle.net/10022/AC:P:15661Wed, 02 Mar 2011 00:00:00 +0000The paper shows that in the presence of network externalities, consumers adopt conventional technologies too early; the waiting option for a newly emerging technology is not exercised enough. This problem is aggravated when the new technology is provided by a single producer with market power because any positive value created via waiting by current consumers will be ex post appropriated by the monopolist. Therefore, the monopolist's power to extract surplus operates against his own interests in this dynamic setting. The paper also shows how the producer of a new technology can partially overcome the problem of too little waiting by using licensing as a commitment device.Economicsjpc8EconomicsWorking papersTechnology Transfer with Moral Hazardhttp://academiccommons.columbia.edu/catalog/ac:100186
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15638Wed, 02 Mar 2011 00:00:00 +0000This paper develops an incomplete contract model of the licensing relationship that is susceptible to the moral hazard problem. The optimal contractual form of licensing derived in the model generates predictions that seem to be consistent with actual practice. For instance, the introduction of inputs that are not contractible and costly explains the prevalence of royalty contracts in the licensing relationship. Moreover, the model is able to relate the size of the royalty rate to the parameters that represent the environments under which the concerned parties operate. The framework also provides a rigorous evaluation of the recent debate on the issue of technology licensing and competitiveness in the global economy. In addition, the difficulty that the licensor faces in controlling the use of information in the development of related products in the future can explain the rationale for including grant-back clauses in licensing contracts. Finally, the model can be naturally extended to analyze the choice of a technology holder between direct investment and licensing in an attempt to serve a foreign market.Economicsjpc8EconomicsWorking papersThe Provision of (Two Way) Converters in the Transition Process to a New Incompatible Technologyhttp://academiccommons.columbia.edu/catalog/ac:100113
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15615Mon, 28 Feb 2011 00:00:00 +0000This paper analyzes the dynamic provision of converters in the transition process between two incompatible technologies. I derive the equilibrium behavior in the provision of converters and compare it to the socially optimal outcome. I find that there can be two types of market inefficiency in the provision of converters. First, converters can be supplied by the "wrong" group. Second, the timing of provision may be too late since the providers of converters ignore the positive externality that their patronage would confer on the users of the rival technology.Economicsjpc8EconomicsWorking papersDo Converters Facilitate the Transition to a New Technology?: A Dynamic Analysis of Covertershttp://academiccommons.columbia.edu/catalog/ac:100090
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15608Mon, 28 Feb 2011 00:00:00 +0000This paper analyzes the process of transition in standards between incompatible technologies when converters are available. Contrary to a common presumption that converters facilitate the transition from an old technology to an otherwise incompatible new technology, I find circumstances in which the possibility of transition is blockaded by the existence of converters. When there are changes in the adoption behavior due to the existence of converters, I also analyze the welfare consequences of the changes in the adoption regimes. In the welfare analysis of converters, a distinction is made between ex ante and ex post efficiency.Economicsjpc8EconomicsWorking papersPatent Litigation as an Information Transmission Mechanismhttp://academiccommons.columbia.edu/catalog/ac:100046
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15595Mon, 28 Feb 2011 00:00:00 +0000The literature on patent protection assumes a so called "fencepost" system, in which there would be no need to refer to the courts over questions of interpretation. In reality, we observe a myriad of patent infringement suit through which questions of utility, novelty, and nonobviousness are independently ruled on by a court. Therefore, patent litigation accompanying initial imitations can reveal important information about the validity of the contested patents for other potential entrants. This paper explores the implications of such information revelation through patent litigation. It is shown that the payoffs for the patentee and the initial imitator are highly discontinuous in the degree of patent protection. Furthermore, strengthening intellectual property rights is not necessarily desirable for the patentee. The analysis also has implications for interpreting empirical data on imitations lags.Economicsjpc8EconomicsWorking papersHerd Behavior, the "Penguin Effect", and the Suppression of Informational Diffusion: An Analysis of Informational Externalities and Payoff Interdependencyhttp://academiccommons.columbia.edu/catalog/ac:100008
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15583Mon, 28 Feb 2011 00:00:00 +0000This paper analyzes a technology adoption process in which the effect of informational spillover interacts with network externalities. It is shown that the interplay of informational externalities and payoff interdependency induces risk averse and clustering behavior in the technology adoption process. our analysis differs from the herd behavior literature in focusing on how the herd behavior of subsequent users influences the initial adoption decision. The mechanism through which herd behavior is generated is also quite different. herd behavior in this paper stems from each agent's desire to inhibit the revelation of new information which can be used in a way detrimental to her, rather than from each others agent's effort to free -ride on information contained in the decisions made by predecessors. Finally, the model suggests a new perspective on standard-setting committees. Their role is to limit deliberately the effects of information flows, rather than to serve as a forum for exchange of information and negotiation.Economicsjpc8EconomicsWorking papersIrreversible Choice of Uncertain Technologies with Network Externalitieshttp://academiccommons.columbia.edu/catalog/ac:99752
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15503Thu, 17 Feb 2011 00:00:00 +0000This paper explores the problem of sequential and irreversible technology choice in the presence of network externalities when the technologies stochastically evolve over time. Early potential users are shown to adopt an irreversible technology too early compared to the social optimum. The effect of increasing the uncertainty of the technologies on early potential user's decision is analyzed. We find that the sponsor of new emerging technology might choose too safe a research strategy. We also study the consequences of allowing side payments between generations of consumers, and demonstrate that ex post optimal policy can impair ex ante social welfare.Economicsjpc8EconomicsWorking papersOptimal Tariffs and the Choice of Technology: Discriminatory Tariffs vs. the "Most Favored Nation" clausehttp://academiccommons.columbia.edu/catalog/ac:99813
Choi, Jay Pilhttp://hdl.handle.net/10022/AC:P:15522Thu, 17 Feb 2011 00:00:00 +0000We compare the effects of optimal tariffs on the technology choice of exporters under the discriminatory tariffs regime and the "Most Favored Nation (MFN)" clause. It is shown that a lower marginal cost (MC) technology will be chosen in equilibrium under the "MFN" clause. As a result, importing country's long-run welfare increases with the adoption of "MFN" while exporting countries welfare decreases in most cases. However expost technology choice, the importing country prefers discriminatory tariffs. This result, therefore, highlights the role of "MFN" as a commitment mechanism to resolve a time-inconsistency problem facing the importing country.Economicsjpc8EconomicsWorking papers